By Ásgeir Jónsson
As past due because the mid Eighties, Iceland s economic climate revolved round little else than a semi-robust cod-fishing undefined. through the top of the century, even if, it had remodeled itself right into a significant participant in international finance, construction a global banking empire worthy twelve instances its GDP. The tiny island kingdom of 300,000 was once one of many worldwide economic climate s nice good fortune stories.
And then every little thing got here crashing down.
Why Iceland? is the interior account of 1 of the commercial meltdown s so much attention-grabbing and far-reaching tragedies. As leader Economist of Kaupthing financial institution, the rustic s biggest financial institution prior to the cave in, Asgeir Jonsson is ideally suited to check Iceland s cave in in painstaking aspect. He witnessed behind-the-scenes occasions firsthand, comparable to an exciting assembly in January 2008 whilst a gaggle of foreign hedge fund managers collected in a bar in Reykjavik to debate Iceland s economic climate a casual affair that at last turned the heart of a felony research through the rustic s monetary Supervisory Authority.
This within account examines the urgent matters in the back of historical past s greatest banking cave in: How did Iceland remodel itself from one among Europe s poorest to at least one of its wealthiest international locations? What occurred to reason the destruction of the country s banking in the course of a unmarried week of October 2008? used to be it the results of a hypothesis assault by means of hedge money at the country s currency?
Iceland continues to be the most important casualty of the industrial downturn, and the ramifications of its catastrophic failure succeed in deeply into the economies of Europe, the us, and different worldwide markets. Asgeir Jonsson bargains a special standpoint and a professional s perception into the increase and fall of this once-proud banking giant.
Why Iceland? offers the who, what, the place, and whilst of Iceland s death, serving as a desirable learn and offering the knowledge helpful for forecasting whilst and the place the aftershocks will shake up markets in different components of the world.
"Fearsome Vikings chanced on Iceland. Hedge cash knocked it down. It used to be a humiliating tumble for the previous monetary powerhouse, which was once pleased with its prestige in Europe. A past due bloomer, Iceland were the final nation in Europe to be settled, the Nordic kingdom quickly stuck up with its wealthier relatives. It was once all positive till October 2008, while country's banking process collapsed in every week. Written through an Icelandic economist, Why Iceland? chronicles the meltdown, within the context of the nation's history."-- "New York Post" (A "Required Reading" Selection)"
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Extra resources for Why Iceland?: How One of the World's Smallest Countries Became the Meltdown's Biggest Casualty
Sample text
Bank holding companies, which used an adverse scenario, showed that 5 banks would require $13 billion in additional capital to maintain a 4 percent Tier 1 common capital ratio (see table). 2 percent in 2011, with unemployment hovering above 9 percent over the test horizon. Negative macrofinancial linkages led to a cumulative 6 and 19 percent cumulative fall in RRE and CRE prices, respectively, over the test horizon (around 10 percentage points lower than under the baseline). 7 percent, redefaults, which affected 65 percent of all modified loans, kept them elevated at around 2 percent until end-2012.
Equity flows, which had reached a record pace in March-October 2009, and for which the effects of the IOF would have been Note: This box was prepared by Chris Walker. 1IOF stands for Imposto sobre Operações Financeiras, as the tax is known in Brazil. significant, did diminish after October. However, and somewhat surprisingly, the rate of inflows into domestic bonds, where the impact of the IOF should also have been large, remained quite robust after the IOF was imposed. There were increases in short- and long-term dollar borrowing, neither of which is subject to the IOF in its present form.
13 Creditors are likely to scrutinize their bank counterparties on the basis of the market value of their assets, using the most recent data they have on the assumption that these assets may have to be sold to meet repayment requirements. Accordingly, for banks to maintain access to funding markets, private creditors and investors may require them to maintain a buffer of capital in excess of standard solvency norms. Additional recapitalization and higher quality capital are still required in a number of countries to achieve this objective, and to break the sensitivity and interconnectedness between sovereign and bank balance sheets, and the correlation of market spreads.
